Agricultural Trade Between the Philippines and the US: Status, Issues and Prospects by Ronald Yacat

Philippine Institute for Development Studies Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

Agricultural Trade Between the Philippines and the US: Status, Issues and Prospects Liborio S. Cabanilla DISCUSSION PAPER SERIES NO. 2006-05

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Agricultural Trade between the Philippines and the US: Status, Issues, and Prospects1 Liborio S. Cabanilla2

Abstract

The paper describes the environment under which RP-US Agricultural trade currently operates. It also highlights key issues affecting current trade flows between the Philippines and the US, and provides background information vital for future bilateral agricultural negotiations with the U.S. Further to this, it shows that two major factors will determine the prospective net effects of a RP-US FTA on Philippine agriculture. First, the effects on exports will depend on the extent of US reduction of NTBs, particularly on mangoes, carrageenan, and canned tuna. Second, Philippine imports from the US will depend on its willingness to reconsider position, particularly on rice and corn. On this count, it must be noted that rice is an important wage good, and corn is a key livestock feed ingredient. Moreover, the advent of an FTA with the US should be a good reason to get Philippine agriculture better organized, in terms of policy and institutional support. Key words: Agricultural Trade, US Agriculture support programs, Domestic Support Programs, Non-Tariff Barriers, liberalization, border controls, market access

Report submitted to the Philippine APEC Study Center Network (PASCN)-Philippine Institute for Development Studies under the RP-US FTA study. 2 Professor, Economics Department, UPLB. The author wishes to thank Dr. Rey Velasco, Professor, College of Agriculture, UPLB and Dr. Serrano, Director, PHTRC, UPLB for their assistance on technical matters concerning trade with the US. He also thanks the NAFC, Department of Agriculture for organizing a Consultative Forum with agricultural stakeholders on Oct. 28, 2004. 1

Agricultural Trade between the Philippines and the US: Status, Issues, and Prospects L. S. Cabanilla I.

Introduction

Objective Differences in resource endowments and agro-climatic and geophysical environments are important bases for agricultural trade between the Philippines and the United States. However, the flow of goods between the two countries is often hindered by sector-specific and trade policies that ultimately result in sub-optimal trade flows. In support of current plans to pursue a Free Trade Agreement with the US, this paper provides background information for improving the Philippines-US bilateral relations on agriculture. It is an effort to understand the environment under which trade between the Philippines and the US currently operates, and, provide basis for future negotiations. Section II presents an analysis of the status and future prospects of RPUS agricultural trade. Key issues on tariff and non-tariff barriers are also discussed in this section. Section III reviews the policies in the US that have important bearing on Philippine agriculture, and Section IV offers a number of recommendations. Rationale A Free Trade Agreement between the Philippines and the United States at this time is significant for Philippine agriculture. It offers new opportunities and establishes better modalities to improve the flow of goods, services, and technology mutually beneficial to both countries. It fosters the need to reconsider policy positions that lead to imbalanced trade. It will be noted that beginning in the early 90â&#x20AC;&#x2122;s, the countryâ&#x20AC;&#x2122;s net 2

agricultural trade with the US has been on a deficit except in 2003 (Fig. 1). This is in stark contrast to the cases of Thailand and Indonesia which enjoyed predominantly a trade surplus with the US during the nineties (Table 1). Overall, trade performance of Philippine agriculture had been unimpressive. Amidst global trade liberalization, the country experienced a precipitous drop in net (total) agricultural trade in the mid-nineties. Membership in multilateral trade consortia has not worked to the countryâ&#x20AC;&#x2122;s advantage. A stronger bilateral agreement with the US may offer new opportunities for the Philippines to improve its trade balance in agriculture. It must be pointed out at the outset, that any action towards bilateral relations in agriculture must take into consideration the fact that the Philippines is in a relatively disadvantaged position. Compared to the US, Philippine agriculture is predominantly small scale, and the degree of commercialization and trade is much more limited. Its contribution to gross value added, and employment, however, is relatively more significant. Philippine agriculture plays a much more highly significant role in poverty alleviation and overall economic development but the countryâ&#x20AC;&#x2122;s capacity to promote agricultural development is constrained by its overall economic inadequacies. The political and economic ramifications of a Free Trade Agreement are more critical for the Philippines.

II.

Status and Prospects of RP-US Agricultural Trade

Overview The Philippines and the US have been important trading partners in agriculture. USDA data show that over the past 10 years (1994-2003), the Philippines had consistently been among the top 15 destinations of US agricultural exports (Table 2). The US, on the other hand, is the most important destination of sugar, fishery and coconut oil exports of the Philippines. The US sugar market is particularly important for the Philippines in view of the US price premium. Up until the eighties, US sugar 3

price was on average one-and-a-half times the world price, increasing to more than twice in the last 14 years (1990-2003) (Fig.2). Prospects of sugar and coconut oil exports to the US, however, will be dependent on domestic US policies on sugar beet and soybean production, the subject of the following section. Based on the eight-digit Philippine Standard Commodity Classification, the Philippines imported 299 line items of agricultural commodities (including agricultural inputs) valued at US$353 million (FOB) from the US as of July 2004. During the same period, the Philippines exported 294 items valued at US$339 million. Coconut (oil and other products), fish and marine products, sugar and pineapples are the most prominent exports to the US, altogether representing 86 percent of total agricultural exports during the period (Table 3). The following discussion features a selection of key agricultural exports to the US and highlights existing issues affecting trade between the Philippines and the US. Exports Fishery and Marine Products: The US is the Philippinesâ&#x20AC;&#x2122; number one market for Fishery exports followed by Japan and South Korea (BFAR). Canned tuna, however, is currently subject to a high tariff duty of 35% and had to compete with duty-free imports from the Andean countries that are currently receiving preferential treatment on canned tuna. Shrimps and prawns exports which averaged over $25 million per year from 1991 to 2003 were the most important exports under the Fishery category (Table 4). Until 1996, exports of shrimps and prawns were close to 30 million dollars per year. The US ban on imports of shrimps not caught using the turtle excluder device has since then limited exports to mostly inland-produced shrimps.3 Carageenan4 and seaweeds are fast growing exports of the country. In 1998, the Philippines emerged as one among the major exporters of Carrageenan (Table 5). Between 1991 and 2003, exports to the US grew at an average of five percent a year, 3

In 1996, the Philippines filed a complaint with the WTO concerning the US import prohibition of certain shrimp products (more particularly, the ban on imports of shrimps not caught using the turtle excluder device). It is not clear whether or not this has been resolved. 4

but the US market ranked only the fourth among the Philippines’ market for carrageenan. Future prospects are currently affected by the issue involving an American company (FMC) engaged in carrageenan processing in Cebu. This has to do with a complaint filed by the Seaweed Industry Association of the Philippines (SIAP) with the DENR about the alleged negligence of FMC in undertaking proper water treatment, thus, in effect, polluting the waters of Cebu. Because of this issue, Carrageenan is reportedly not eligible for a GSP preferential treatment in the US (Manila Times, July 26, 2003). The Seaweed Industry Association of the Philippines argues that in disqualifying carrageenan from GSP eligibility, the US has “politicized” the issue as the complaint against FMC is environmental- rather than trade-related5.

Future growth of carrageenan exports to the US depends on the

resolution of this issue. Sugar: The Philippines is one among 40 countries eligible for the US sugar quota system. With 13.5 percent share, the Philippines has the third largest sugar quota allocation. In 2003, its total export of raw sugar and sugar products was 144,000 metric tons valued at $61.2 million. This is expected to increase in 2005 in view of the USDA’s decision to increase the total quota scheduled for allocation from 1.112 million to 1.17 million metric tons. Industry leaders are confident that the share of the Philippines in the US sugar quota will remain as stable in the future as it has been in the past (Zabaleta6, personal communication). However, available documents indicate that there are some interest groups in the US that are raising questions on the current status of the Philippines’ quota allocation. A US General Auditing Office Report (GAO, 1999) for example, raised two specific points concerning the Philippines’ sugar quota: a. The share of the Philippines has remained the same despite the decline in domestic production. b. Brazil’s share of 14.5 percent (compared to the Philippines’ 13.5) is very small because it exports 21 times more sugar than the Philippines. 4

See Annex A for a brief description and list of applications of carrageenan. A review of the US GSP Guidebook reveal that indeed, the list of criteria for US GSP eligibility/noneligibility does not specifically cover this particular case. 5

Indeed, as Table 6 shows the share of the Philippines is relatively large compared to other major sugar producers if the volume of domestic production, consumption and surplus, are to be considered. This factor may come into play in the future as more countries currently enjoying access to the US quota prepare plans of establishing FTAs with the US (e.g. Thailand and a number of Latin American countries). Furthermore, Mexico, under certain conditions (e.g. quantity of surplus), will enjoy unlimited access in the US market by 2008. Coconut: Coconut oil and desiccated coconut comprise the most important coconut products exported by the Philippines. The US and EU, the major export destinations, each share roughly one-third of the Philippinesâ&#x20AC;&#x2122; total exports (Table 7 and Fig. 3). With an average of $237 million dollars of revenues a year from the US market, coconut exports remained and hopefully will continue to be an important trade item between the Philippines and the US. Health issues against coconut oil, however, may continue to persist. It will be recalled that in the early nineties, coconut oil has been the subject of a massive negative campaign by interest groups in the US particularly the American Soybean Association. The claim was that coconut oil, a saturated fat, increases blood cholesterol count and causes heart disease. This issue has since then, been resolved by independent research findings that coconut oil's saturated fats are made up mostly (65%) of medium chain triglycerides (MCTs) which are easily digested by the body. The body easily converts coconut oil into energy and therefore not deposited as body fat. A new issue that has extremely important relevance to coconut oil exports has emerged. In July of 2003 the US Department of Health & Human Services announced that new Food and Drug Administration (FDA) rules would dictate that by 2006 all food labels must list the amount of trans-fatty acids (http://www.skinnykat.com/litter/archives/000253.html. Local coconut industry stakeholders have expressed concern that this new USFDA ruling may have negative

Jose Maria T. Zabaleta is the Executive Director of the Philippine Sugar Millers Association, Inc. 6

effects on the Philippines’ coconut oil exports to the US (Ms. Yvonne Agustin, UCAP). It serves as a discriminatory move against vegetable oils that compete with soybean oil, a major product of the American Soybean industry. Tropical Fruits: Mangoes and bananas, which are among the country’s top exports to other countries (e.g. Japan) have only been minor items in the list of exports to the US. Mexico and South American countries are the major suppliers of tropical fruits to the United States. Available data show that in 1998, US banana imports were valued at $1.1 billion, more than 40 percent of the total value of fruit imports during the year (USDA). Ecuador, Costa Rica and Guatemala supply most of the US imports of bananas. Mexico is the largest supplier of mangoes. Philippine exports of banana to the US are negligible. In 2003, some 323 tons (including plantains) valued at $138 thousand were exported to the US. Given the distance between the port of origin and consumption centers in the US, shelf-life poses the greatest problem for fresh banana exports. The same thing is true for fresh mangoes. Under the current situation, dried mango exports have an advantage over fresh mangoes in the US market. Of the total 1,497 tons of mango exported to the US in 2003, 1,280 tons were dried with a value of $5.5 million. The rest were fresh mangoes valued at $243 thousand. While fresh Philippine mangoes are in high demand in rich Asian markets such as Japan and Hong Kong, it has not gained inroads in the US market, however, because of existing phytosanitary requirements which delimit its market potential. To date, only Guimaras mangoes are allowed entry into the US market, subject to a vapor heat treatment (see Annex B for the specific requirements imposed on Philippine mango exports to the US). Among the mango producing regions in the country, only Guimaras Island has been identified as pest-free (from seed weevil and mango fruit flies – the Bactrocera Occipitalis, and Bactrocera Philippinensis), and thus, certified by the USDA as an eligible supplier of fresh mangoes to US markets. Local industry leaders, however, claim that irradiation technology could effectively solve the weevil and fruit fly problems. Furthermore, Guam and Hawaii, two important potential 7

markets for Philippine mangoes are known to be not totally pest-free, therefore, would not be harmed by Philippine mango exports. Imports Imports of agricultural products from the US averaged US$ 614 million per year over the last 13 years. Among the top imports are: grains (mostly wheat), livestock and dairy products (especially dairy), and protein meal (e.g. products of milling industry such as soybean cake) and oilseeds (mostly soybeans). With an average yearly wheat importation of 1.7 million metric tons valued at $249 million, the Philippines, is looked upon as a reliable market for US wheat. So also, for other major agricultural exports of the US. In 2000, the Philippines ranked among the US top 10 markets for dairy, wheat, protein meal and vegetables and vegetable preparations (Table 8). Future imports of these commodities by the Philippines will likely behave in the same pattern because of the lack of domestic substitutes. Cassava flour, for example, is a costly substitute to wheat flour (not to mention the insignificance of domestic cassava production), and, local soybean production is practically nil. But for strong political and economic reasons, a few import items are, however, expected to pose sensitive issues. Imports of basic staples (rice and corn) and meat products are contentious. These will be the subject of the following discussion. Rice and Corn: The two staples, rice and corn, are the centerpieces of Philippine agriculture and have been treated as highly sensitive commodities in trade negotiations. Attainment of food security objectives has been etched in Philippine statutes (e.g. AFMA) and official policy statements as equivalent to self-sufficiency in these two crops. Trade data, however, show that the Philippines has been a net importer of rice and corn. For most of the last century, the country has been a net importer of rice (Dawe, 2001) and corn imports averaged a quarter of a million tons per year over the last 20 years (Cabanilla, 2004). Because of proximity, Thailand and Vietnam have been the main sources of rice imports although the US has occasionally supplied high quality rice in the past. In 2001, the US share of the Philippines rice 8

imports was 12 percent compared to Thailand’s 22 percent and Vietnam’s 66 percent. For the period 1991-2003, imports of rice from the US averaged 17,481 MT per year and for corn, 76,080 MT (Table 9). Tariff is the main border protection used for corn with in-quota rate of 30 percent and out-quota rate of 50 percent. For rice, tariff rate is 50 percent but additional protection is conferred by NFA through its controls (e.g. licensing and allocation) on the quantity of rice imports7. The minimum access volume for rice was 194,135 MT in 2003 and increased to 224,005 MT in 2004. For corn, MAV in 2004 was 212,119 MT. To date, however, utilization rate of the corn MAV is less than 100 percent. For 2004, MAV utilization in corn is very low at less than one percent (Table 10). Apparently, the additional discretionary controls exercised by the government on cereal importations effectively provided extra protection over what is accorded by the nominal tariff rates. Up until 2003, the National Food Authority monopolized international trade in rice. The private sector is now allowed to import rice but import licensing remains at the discretion of the NFA. Future tariff and non-tariff protection on rice and corn will inevitably be hinged on the country’s objectives in other sectors of the economy. Rice is a wage good and a high border protection will create a wage-price spiral detrimental to manufacturing industries. Corn is a key feed ingredient, comprising as much as 70 percent in hogs and poultry feed mixes. Growth of commercial livestock and poultry production depends, among other things, on the domestic price of corn – a factor that is easily manipulated by trade policies. Meat Imports: Chicken, bovine and swine meat, are the main meat products imported by the Philippines, with chicken comprising the bulk. The preference for fresh pork by the majority of Filipino consumers serves as a natural protection to domestic swine producers. Beef, on the other hand, is not a common consumer item by the average-income family. Between pork and chicken meat, rate of utilization of the Minimum Access Volume is substantially higher in chicken meat in 2004 (Table

10). Pork imports are on average, very negligible. In 2003, total pork imported from the US was 78 tons valued at $57,897. As of July 2004, pork imports are worth $35,556 – a very small amount compared to chicken imports worth more than $2 million for the same period. Chicken meat is also considered by domestic producers to be the more sensitive commodity as it is often subject to what they call “unfair competition”. Imports of chicken meat come in two general types – whole and cuts. The latter are mostly leg quarters which are of lower demand in the US market where consumers have high preference for white meat. The average quantity of imports of chicken cuts were 3,986 metric tons from 1996-2004. For whole chicken, the average was 1,263 metric tons (Table 11). All meat imports are subject to quota tariff rates. In-quota and out-quota rates for swine meat are currently 30 percent and 40 percent, respectively, and set to remain at the same levels in 2005. For chicken meat, both in-quota and out-quota rates, are 40 percent, and will remain at that level in 2005. The point about “unfair competition” raised by the local livestock industry stakeholders is illustrated in Table 12. The allegation is that chicken cuts (mainly leg quarters) imported from the US comes out much cheaper than domestic chicken even after tariff is applied. In 2004 where wholesale price data are readily available, we note that indeed, the peso price equivalent of imported chicken is much lower than both the lowest and highest posted wholesale price of chicken during the period. This point is certainly an important matter to take up in future discussions on a US-Philippine FTA. Synthesis: The analysis presented above is by no means complete. A simple comparison of the tariff rates currently imposed by the Philippines and the US on a selected group of commodities, however, serves to supplement what have been tackled thus far. Table 13 shows US tariff rates on a few key agricultural commodities. Most of these are 7

Up until 2006, the National Food Authority monopolized international trade in rice. The private sector is 10

either currently major export items of the Philippines (e.g. sugar, coconut oil, pineapples, and fishery products) or potentially important exportable goods to the US (e.g. mango and other tropical fruits and fruit purees). Note that close to half of the tariff lines shown are free. For the rest, the rates are already low (except for canned tuna in oil), relative to that of the Philippines’ tariff rates (as shown in Table 11). Moreover, the commodities with positive tariffs are eligible for GSP preferential treatment (refer to the “special” column). The special treatment under the GSP is, however, bilaterally negotiated periodically and highly discretionary it could be used as a retaliatory measure against what is perceived by the granting party as unfair trade practice by the requesting party. This is exemplified by the carrageenan case which, fortunately for the Philippines, is an isolated case. In the immediate run, what the above observation suggests, in simple terms, is that between the Philippines and the US, there is currently a bigger room for gains from a Free Trade agreement in agriculture for the US. A review in the next section, of domestic policies implemented by the US, will serve as an additional backdrop in highlighting important points for future negotiations. III.

US Policies Affecting Philippines-US Agricultural Trade

The focus of the following discussion, are domestic support programs and export enhancement program of the US. These are policy areas which have direct bearing on Philippines-US trade relations. Domestic Support Programs8 The United States Farm Act of 2002, otherwise known as the Farm Security and Rural Investment Act appropriates for agriculture, $180 billion over a period of 10 years. Among others, the law provides for the implementation of three Commodity

now allowed to import rice but import licensing remains the discretion of the NFA. 8 The discussion here is based on (Gray, 2002; and Westcott, et al, 2002). 11

Programs: Direct Payments, Counter Cyclical Payments and Loan Deficiency Payments – the frequent subject of debates in WTO negotiations.. Direct Payment is a fixed amount paid to farmers. Among the three commodity support programs, it is the most “decoupled” as it does not directly distort prices. Loan Deficiency payment is a “one-time amount an eligible producer can collect on grain that is not put under a 9-month non-recourse marketing loan.. The LDP rate is equal to the amount, if any, by which a posted county price (PCP) is below the designated county loan rate on a specific date” (http://www.hedger.com/ldp.htm). Counter Cyclical Payment is paid to farmers in an effort to minimize risk due to price fluctuations. These payments are available for corn, soybeans, wheat, cotton, rice, grain sorghum, barley, oats, peanuts, other oilseeds, small chickpeas, and lentils. Each type of payment uses a different formula to compute the payment a producer will receive on a farm. (Gray, A., 2002) http://www.agecon.purdue.edu/extension/policy/ To highlight the significance of these payments to Philippine agriculture, payments for corn, soybeans and wheat will be illustrated with emphasis on corn. First, we note in Table 14, the magnitude of the US commodity programs from 1996 to 2002. In 2002, the total payment for corn for example, is several times more than the gross value added of corn in the Philippines which in 2002 was a little over PhP10 billion (in 1985 prices). In Table 15, the farm-level implications of each commodity program are illustrated. Note that for corn, total payments amount to PhP1.07 per kilogram. This represents an income subsidy which a Filipino corn producer does not enjoy. For equity reasons, this observation may justify border protection to domestic corn producers from US producers. Export Enhancement Program Export subsidy is a common feature of US agricultural policy. The Export Enhancement Program (EEP) is an effort to assist farm products in competing with exports from other countries (such as the EU) that subsidize agricultural production. 12

Under the program, the U.S. Department of Agriculture pays cash to exporters as bonuses, allowing them to sell U.S. agricultural products in targeted countries at prices below the exporter's costs of acquiring them. The major objectives are to expand U.S. agricultural exports and to challenge unfair trade practicesâ&#x20AC;?. (http://www.fas.usda.gov/info/factsheets/eep.html) The US Farm Act of 2002 authorizes funding for the Export Enhancement Program to the tune of $478 million per year until 2007. Justification cited for this program is to counter trade-distorting policies such as labeling, unjustified sanitary and phytosanitary restrictions, and monopolistic state trading enterprises. Other smaller programs such as the Marketing Assistance Program with annual funding initially at $90 million in 2003 and rising to $200 million in 2006; and the Foreign Development Cooperator Program, are also in place. The latter program has an annual budget of $34.5 million from the 2002 Farm Act. Taken together, these programs confer to US farmers, enormous advantage vis-Ă -vis the Filipino farmers. Food for Peace Program US Public Law 480 (PL 480) otherwise known as the Agricultural Trade and Assistance Act of 1954 is designed to assist poor countries suffering from food insecurity. Title I of this law provides the sale of USDA-designated agricultural products to poor countries (government or private entities) on a long-term (e.g. 30 years or more) and highly concessional arrangement. The Philippines is a regular participant in this program. Between 1991 and 2001, the country received a total of $190 million loan comprising mostly of soybean meal imports and lately, corn and rice (Table 16). In 2003, it had the highest share in the program among 11 Asian countries that include Indonesia, Vietnam and India. From a practical point of view this program is useful to countries unable to generate sufficient foreign exchange for food imports. But maybe equally or more important to note, is that it serves as an effective means of disposing US agricultural production surplus9.

In the context of LDC agriculture, Hla Myint referred this to as vent-for-surplus. 13

US Bioterrorism Act The US Bioterrorism Act was signed by President Bush in June of 2002. This was in response to the heightened security policies following the September 11, 2001 terrorist attack. The primary goal of the act is to protect the US food supply against intentional food contamination10. Among the provisions of this Act that have direct bearing on agricultural exports are the following: a. Registration of Food Facilities. Facilities that manufacture, process, pack or hold food for human or animal consumption in the US should register must register with the US Food and Drug Administration by December 12, 2003. Imported food from an unregistered facility will be held at the border. b. Advance Notice of Food Shipment. Prior notice of food shipments must be sent electronically to the USFDA no more than five days before arrival and no fewer than: two hours before arrival by land via road, four hours before arrival by air or land via rail, or eight hours before arrival by water. To date, feedback from Filipino food exporters does not indicate any unfavorable reaction to the current implementation of the new set of rules mandated by the Bioterrorism Act. Recap: In concluding this section, it must be noted that the above cursory review of the US policies serve to highlight the discretionary nature of the tools that could be used to promote and protect domestic agricultural production. They complement and reinforce the border protection policies briefly discussed in the previous section. Similar types of tools (particularly Commodity Payments and Export Enhancement) are beyond the means of poor countries such as the Philippines. In practice, even the GSP non-reciprocal preferences granted by developed countries including the US, often work to disadvantage of poor recipient countries (Ozden and Reinhardt). But this imbalance must be used as a 10

Supplementary to the Bioterrorism Act, the US Farm Act also requires detailed country-of-origin labeling (COOL) for fish and shellfish products. On October 23, 2003, the USDA issued a proposed country-of-origin labeling guidelines for domestic and imported meat, fish, shellfish, peanuts and other products. Effectivity of the Rule is September 30, 2004. (http://www.agf.gov.bc.ca/fisheries/reports/SWOT/SWOT_3.0.pdf) 14

ground for crafting future agreements that minimize deleterious effects to the disadvantaged party. For purposes of future trade negotiations, it will also be noted that in many countries like the Philippines, US-based agricultural companies have substantial business operations. Monsanto and Pioneer Hi-Bred, are two such companies operating in the Philippines selling agricultural chemicals and seeds (primarily Hybrid corn). In 2003 this two companies registered a total gross sales of P1.7 billion (roughly $30 million at current exchange rate of P56) with Monsanto garnering 75 percent (SEC files). IV Concluding Comments Greater access to the US market is a privilege and poor countries struggle to enjoy this to the fullest. Among the 40 countries that now have a share of the lucrative US sugar quota, 27 are engaged in different stages of negotiations for an FTA with the US (Table 17). Australia has recently finalized an FTA with the US and Thailand is in a relatively advanced stage of its own negotiation. From the context of agricultural trade, the Philippines has a strong reason to join the trend. For the past 12 years, except 2003, the country had a negative agricultural trade balance with the US. However, the increasing number of FTAs between the US and other countries may constrain opportunities for trade diversion in favor of the Philippines. One source of optimism however, is that the US and the Philippines are on the same side in what will be referred to here as the so-called â&#x20AC;&#x153;Biotechnology Divideâ&#x20AC;?, thus in a sense are biotechnology allies. Since the biotechnology issue has become one important talking point in the WTO, this alliance should serve as a political economy reason for better trade relationship. The traditional exports to the US, hopefully, will establish stronger foothold, and the emerging export winners (e.g. carrageenan, mangoes) gain more market access. But as border protection for Philippine agriculture vis-Ă -vis the US declines in the pursuit of a RP-US free trade agreement, sensitive issues come to the fore. This is underscored by the vulnerability of the predominantly small-holder producers to even the slightest degree of import surge that may emanate from policies pursued by the US particularly in 15

the area of Commodity Payments and Export Promotion. Appropriate countervailing measures must be crafted early on to address the plight of livestock raisers and vegetable farmers who are highly vulnerable. The case of rice and corn will be a sensitive issue as well. But for corn, this may in fact open a window of opportunity to expand industries that are corn-dependent (e.g. livestock and poultry). For rice, freer trade may yet resolve the long â&#x20AC;&#x201C;standing issue of privatizing NFA and facilitate rural diversification. Phytosanitary issues will be a source of continuing controversy but strict dependence on science will be the best recourse for resolution. This, however, could be an avenue for stronger collaboration in scientific research and development between and among academic and similar institutions in both countries.

References

Cabanilla. L. S. (2004) Philippine Agriculture, Food Security, and APEC: An Integrative Report. Draft report submitted to PASCN Dawe, D. (2002). “The changing structure of the world rice market, 1950-2000”. Food Policy 27 (2002) pp. 355-370.

Manila Times, July 26, 2003 “Group says US politicized seaweed industry in RP” Monsanto Financial Statements (2003). Financial Statements submitted to the Philippines Securities and Exchange Commission. Myint, H. (1971) Economic Theory and the Underdeveloped Countries. New York: Oxford University Press. Ozden, C. and E. Reinhardt ( ) “The Perversity of Preferences: GSP and Developing Country Trade Policies, 1976-2000”. Philippine Sugar Millers Association, Inc. (1999) “Country Policies on Sugar” Pioneer Hi-Bred Philippines Inc. (2003). Financial Statements submitted to the Philippines Securities and Exchange Commission. Tariff Commission (2004) Tariff and Customs Code of the Philippines, Volume I. United Coconut Associations of the Philippines, Inc. (2003). Coconut Statistics, Vol. VI No. 35, November 2003. University of Asia and the Pacific (2001). “Philippine Eucheuma Seaweeds/Carrageenan Industry: Industry Analysis and Strategic Directions.” US Federal Register / Vol. 68, No. 210 / Thursday, October 30, 2003 / Proposed Rules (http://www.ams.usda.gov/cool/ls0304.pdf) US GAO (1999) “Sugar Program: Changing the Method for Setting Import Quotas Could Reduce Cost to Users”, Report to Congress. Westcott, P. (2003) “Perspective on Impacts of the 2002 US Farm Act”. Paper presented at the Policy Disputes Information Consurtium, Ninth Agricultural and Food Policy Information Workshop, Montreal Canada, April 24, 2003. Westcott, C. Edwin Young, and J. Michael Price (2002) “The 2002 Farm Act Provisions and Implications for Commodity Markets”. Electronic Report from the Economic Research Service. (www.ers.usda.gov). 17

Tables and Figures

Fig. 1. Phil net agri trade 500

(1,000)

20 03

20 01

19 99

19 97

19 95

(500)

19 93

19 91

($million)

Total USA

(1,500) (2,000)

Table 1. US agricultural trade balance (million $) with the Philippines, Indonesia and Thailand, 1996-2002 Year Philippines Indonesia Thailand 1996 304 (684) (310) 1997 247 (777) (313) 1998 113 (884) (324) 1999 309 (506) (276) 2000 443 (312) (278) 2001 379 84 (121) 2002 339 (117) (123) Notes: parenthesis indicates trade deficit Source: http://usda.mannlib.cornell.edu/reports/erssor/trade/aes-bb/2004/aes41.pdf

Table 2. Top 15 US agricultural exports destinations based on dollar values, 1994-2003. 1994

1995

1996

1997

Country

1998

1999

2000

2001

2002

2003

(FOB billion dollars)

Japan

9.457

11.16

11.692

10.523

9.102

8.812

9.29

8.883

8.382

8.935

7.075

8.655

9.265

9.078

7.94

6.413

6.244

6.404

6.145

6.454

Canada

5.559

5.79

6.122

6.767

6.993

7.058

7.64

8.121

8.66

9.3

Mexico

4.592

3.537

5.438

5.173

6.154

5.624

6.41

7.404

7.226

7.914 2.853

South Korea

2.337

3.754

3.866

2.86

2.266

2.448

2.546

2.588

2.672

China (Taiwan)

2.147

2.596

2.958

2.614

1.798

1.945

1.996

2.009

1.966

2.036

Hong Kong

1.243

1.502

1.488

1.712

1.492

1.209

1.262

1.227

1.09

1.114

China (mainland)

1.084

2.633

2.088

1.614

1.358

0.854

1.716

1.938

2.067

4.992

Egypt

0.872

1.448

1.319

0.964

0.914

0.966

1.049

1.022

0.862

1.001

Russia

0.645

1.046

1.327

1.204

0.835

0.728

0.58

0.917

0.551

0.579

0.72(11)

0.783(10)

0.901(10)

0.793(12)

0.776(11)

0.628(13)

0.531

0.668

0.907

0.809

0.984

0.501

0.658

0.571

0.675

0.901

0.57

0.611

0.675

Philippines

0.577(12)

0.765(12)

0.891(11)

0.873(11)

Indonesia

0.485

0.816

0.848

0.772

Turkey

0.536

0.637

0.733

0.59

0.665

Thailand

0.493

Saudi Arabia

0.487

0.668

0.503

0.447

Colombia Dominican Republic

0.632

0.551

0.506

Brazil

0.493

0.575

Israel

0.617

Australia

0.611

Algeria

0.595

Switzerland

0.545

Malaysia

0.537

Venezuela

0.513

0.59

0.52

Note: Numbers do not include exports of agricultural inputs. Source: USDA (http://www.ers.usda.gov/Data/FATUS/)

Fig. 2. US and World Sugar prices 35.00 30.00 20.00

15.00

World

10.00 5.00 0.00 19 60 19 64 19 68 19 72 19 76 19 80 19 84 19 88 19 92 19 96 20 00

cents/lb

25.00

Table 3. Philippines major export items, as of July 2004. Item Value Percent of (000US$) Total Sugar 13.42 45,361 Coconut 37.26 125,998 Oil 110,738 Other 15,260 Pineapples 12.95 43,786 Canned 27,733 Concentrate 16,053 Fishery and Marine products 76,110 22.51 Fish and Others 66,592 Seaweeds 9,518 Total 291,255 86 Note: Total exports for the period = $339,114,045

Table 4. Major Agricultural Exports to the US 1991 Items

1994

1997

2000

2003

Qty.

Value

Qty.

Value

Qty.

Value

Qty.

Value

Qty.

Value

Thousand

(million

thousand

(million

thousand

(million

thousand

(million

thousand

(millio

Tons

US$)

tons

US$)

tons

US$)

tons

US$)

tons

US$

Coconuts Dessicated Coconuts

Coconut oil (crude)

328

115

237

131

340

209

275

118

243

Coconut oil (refined)

119

134

166

131

136

148

147

165

160

Pineapples Pineapples (canned) Pineapple juice (oth than conc)

Pineapple juice (concentrate)

274

115

104

198

139

138 2

Sugar Fish and oth marine Products Shrimps and Prawns

Octopus (frozen, dried, salted)

Tuna, whole

Skipjack

Carageenan and seaweeds

Table 5. Top ten world exporters of seaweeds and other algae 1995 1996 Quantity Value Quantity Value (tons) (US$000) (tons) (US$000) Country 24026 128779 20766 99083 China 37436 75081 42130 84717 Philippines Chile 36847 25043 39078 25212 China, Hong Kong 7515 12105 7576 12970 Indonesia 24957 16262 22310 18962 France 2086 2609 6255 5730 Norway 3633 2955 3622 3196 Mexico 39362 1210 35000 1200 Peru 1042 768 Other countries 15672 86426 17248 78491 Total 191529 350470 195027 330329 Source: FAO Fishery statistics (in UA and P)

1997 Quantity Value (tons) (US$000) 21349 94259 51008 92482 45419 8672 12698 5366 3988 32665 2387 16847 200399

26862 6829 10521 4537 3176 1215 1206 61233 302320

1998 Quantity Value (tons) (US$000) 25033 104323 48988 75709 26954 31196 43340 28161 9453 7290 5213 5936 5997 5392 3741 2846 5671 300 3785 1376 20715 60573 198890 323102

Table 6. Tariff rate-quota allocation in the US, production and consumption, 1998. Country TRQ (%) Allocation Production Consumption Allocation (000MT) (000) Metric Tons Argentina 4.3 72 1925 1599 Australia 8.3 140 6137 1091 Barbados 0.7 9 51 18 Belize 1.1 18 130 15 Bolivia 0.8 13 366 254 Brazil 14.5 244 17306 9700 Colombia 2.4 40 2374 1461 Congo 0.3 8 44 39 Costa Rica 1.5 25 419 228 Cote d'Ivoire 0.3 8 127 182 Dominican Republic 17.6 296 518 331 Ecuador 1.1 18 208 413 El Salvador 2.6 44 510 238 Fiji 0.9 15 408 57 Gabon 0.3 8 22 25 Guatemala 4.8 81 1896 493 Guyana 1.2 20 273 35 Haiti 0.3 8 11 83 Honduras 1 17 288 255 India 0.8 13 16085 18409 Jamaica 1.1 18 206 142 Madagascar 0.3 8 105 108 Malawi 1 17 215 198 Mauritius 1.2 20 725 46 Mexico 0.3 28 6052 4674 Mozambique 1.3 22 44 77 Nicaragua 2.1 35 394 204 Panama 2.9 49 187 100 Papua New Guinea 0.3 8 44 35 Paraguay 0.3 8 143 128 Peru 4.1 69 507 998 Philippines 13.5 227 1986 2094 St. Christopher-Nevis 0.3 8 28 4 South Africa 2.3 39 2660 1507 Swaziland 1.6 27 571 248 Taiwan 1.2 20 364 540 Thailand 1.4 24 4679 1872 Trinidad-Tobago 0.7 12 86 93 Uruguay 0.3 8 22 121 Zimbabwe 1.2 20 632 367 Source: US GAO (1999) "Sugar Program: Changing the Method for Setting Import Quotas Could Reduce Cost to Users", Report to Congress

Surplus 330 5046 33 115 112 7606 913 5 191 -55 187 -205 272 351 -3 1403 238 -72 33 -2324 64 -3 17 679 1378 -33 190 87 9 15 -491 -108 24 1153 323 -176 2807 -7 -99 265

Table 7. Value (000 US$) of Philippine coconut exports by destination, 1988-2002. Year

United States 1988 219239 1989 175609 1990 154693 1991 183446 1992 288952 1993 244402 1994 235108 1995 347762 1996 334136 1997 340766 1998 303138 1999 206358 2000 204087 2001 154175 2002 173029 Source: UCAP

Europe 252463 250753 260875 171747 234081 215067 256659 397123 257358 331879 369667 146837 187918 211898 171703

Other Countries 109213 101221 85311 102480 118421 110327 131242 246933 152694 138497 143257 96897 168969 153520 128589

Total 580915 527583 500879 457673 641454 569796 623009 991818 744188 811142 816062 450092 560974 519593 473321

US share (percent) 38 33 31 40 45 43 38 35 45 42 37 46 36 30 37

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

(p e rc e n t)

Fig. 3. Coconut exports

40 US

30 EU

20 Oth

Table 8. Importance of the Philippines in US Agricultural Exports, 1999/2000 Item Rank Value (US$ million) Dairy Products No. 8 36 Wheat and Flour No. 3 256 Protein Meal No. 1 161 Vegetables and Preparations No. 9 49 Source: USDA

Table 9. Rice and corn imports from the US, 1991-2003. Rice Corn Year Quantity Value Quantity Value (MT) ($000FOB) (MT) ($000FOB) 1991

321

1992

595

172

1,314

576 408

1993

1994

909

1995

106,236

16,114

1996

2,972

1,377

322,621

68,739

1997

12,804

4,436

108,732

17,076

1998

202

158,208

24,394

1999

49,559

49,639

2000

9,400

684

23,509

3,795

2001

109,053

31,033

48,759

4,574

2002

39,769

9,679

157,414

23,429

2003

52,954

11,315

10,861

960

Average 17,481 Source: NSO

4,516

76,080

16,152

Table 10. Minimum Access Volume allocation and Utilization, 2004 Commodity Unit Allocation Issued Utilization Rate (%) Pork (fresh, chilled, frozen( MT 53005 9689 18 Poultry (fresh, chilled, frozen) MT 22968 15906 69 Potatoes (fresh, chilled) MT 1516 1516 100 Coffee Beans MT 1457 186 12.8 Corn MT 212119 263 0.1 Sugar MT 62627 0 0 Coffee Extracts MT 35 27 76.2 Source: MAV committee, DA.

Table 11. Philippine Tariff Rates on selected agricultural products Items 2004 InOutInquota quota Other quota Live Animals* Swine 30 35 30 Goats 30 40 30 Poultry Fowls 35 35 35 Turkey 35 40 35 Ducks 35 40 35 Meat Bovine 10 10 10 Swine 30 40 30 Chicken 40 40 40 Turkey Whole (fresh, chilled) 40 40 40 Whole (frozen) 30 35 30 Ducks 40 40 40 Vegetables Potatoes (fresh chilled) 40 40 40 Onions 40 Garlic 40 Cauliflowers 25 Cabbages 40 Lettuce 25 Carrots 40 Cassava 40 Sweet Potato 40 Coffee Not Roasted Not decaffeinated 30 40 30 Decaffeinated 40 40 40 Roasted 40 40 40 Corn 35 50 35 Rice 50 Note: * Only for animals not used for breeding purposes Source: Tariff Commission

2005 Outquota

Other

35 40 35 40 40 10 40 40 40 35 40 40 40 40 25 40 25 40 40 40

40 40 40 50 50

Table 12. Before and after tariff per unit values of chicken imports. Before Tariff After Tariff Per Unit Value Per Unit value Year ($/kg) ($/kg) Cuts Whole Cuts Whole 1995 2.35 3.29 1996 1.99 2.78 1997 0.79 1.31 1.11 1.84 1998 0.92 0.99 1.28 1.39 1999 0.61 0.68 0.86 0.95 2000 (in qta) 0.57 0.6 0.8 0.84 2001 (in qta) 0.61 0.49 0.86 0.69 2002 (in qta) 0.55 0.71 0.77 0.99 2002 (o-qta) 0.5 0.69 2003 (in qta) 0.5 0.41 0.7 0.57 2004(in-qta) 0.57 0.73 0.8 1.02 2004 ave. Domestic Wholesale Source: NSO for trade data BAS for prices

After Tariff Per Unit value (Pesos/kg) Cuts Whole

32.65 52.39 33.44 35.29 43.65 40.66 36.8 38.43 44.58

72.97 54.1 56.93 37.23 37.08 35.07 52.56 31.57 56.96

Low = 78.94 High = 84.05

Table 13. US Tariff rates on selected agricultural products. Tariff Tariff Rate Commodity Heading Rate Special 1.1606 Sugar 1701.11.05 cents/kg A* Coconut oil 1513.11.00 Free Dessicated coconut 0801.11.00 Free Soybean oil 1507.10.00 19.10% Pineapples (bulk) 0804.30.20 0.51/kg A+ Pineapples (crate) 0804.30.40 1.14/kg A Bananas 0803.00.20 Free Plantains (dried) 0803.00.40 1.40% A+ Mangoes (fresh) 0804.50.60 6.6 cnts/kg A Mangoes (dried) 0804.50.80 1.5 cents/kg A Avocados 0804.40.00 11.2 cents/kg A Durian 0810.60.00 2.20% A+ Papayas 0807.20.00 11.20% A+ Fish Live 0301.91.00 Free Tuna (chilled, fresh, frozen 0302.32.00 Free Tilapia 0303.79.20 Free Lobsters 0306.12.00 Free Shrimps and Prawns 0306.22.00 Free Crab Meat 0306.14.20 7.50% A+ Other crab 0306.14.40 Free Oysters 0307.10.00 Free Mussels 0307.49.00 Free Squid 0307.49.00 Free Snails 0307.60.00 5% A+ Canned tuna (in oil) 1604.14.10 35% A+ Canned tuna (not in oil) 1604.14.22 6% A+ Other canned fish 1604.14.30 13% A+ Fruit Purees Mango 2007.99.50 1.30% A Papaya 2007.99.55 14% A+ Pineapple (preserved) 2008.20.00 1.35 cents/kg Pineapple (juice) 2009.41.00 4.24/liter (A+) Source: USITC: http://hotdocs.usitc.gov/tariff_chapters_current/toc.html

A = articles that are generally GSP-eligible for GSP-eligible developing countries. A+ = articles that are GSP-eligible only for imports from the developing countries identified as Least Developed Beneficiary Developing Countries. A* = articles that are GSP-eligible except for imports from one or more specific countries that have lost GSP eligibility for that article.

Table 14. Total amount of contract payments (billion US$), and allocation by commodities. Commodity and percent allocation Year Total Wheat Corn Sorghum Barley Oats Cotton Rice 100 26.26 46.22 5.11 2.16 0.15 11.63 8.47 1996 5.5700 1.4627 2.5745 0.2846 0.1203 0.0084 0.6478 0.4718 1997 5.3850 1.4141 2.4889 0.2752 0.1163 0.0081 0.6263 0.4561 1998 5.8000 1.5231 2.6808 0.2964 0.1253 0.0087 0.6745 0.4913 1999 5.6030 1.4713 2.5897 0.2863 0.1210 0.0084 0.6516 0.4746 2000 5.1300 1.3471 2.3711 0.2621 0.1108 0.0077 0.5966 0.4345 2001 4.1300 1.0845 1.9089 0.2110 0.0892 0.0062 0.4803 0.3498 2002 4.0080 1.0525 1.8525 0.2048 0.0866 0.0060 0.4661 0.3395

Table 15. Government Payments Calculator (2002 Farm Bill) Items Corn Direct Payments 1.Payment Rate 0.28 2.Base Acres 812.44 3.Direct Payment Yield 120 4.Adjustment Factor 0.85 Total Direct Payments (1)x(2)x(3)x(4) 23203 Direct Payments per Base Acre 28.56 CCP Payment Calculations Corn 5. Target Price 2.6 6. Direct Payments Rate 0.28 7. Effective Target Price (5)-(6) 2.32 8. 12-month Marketing Year Price 2.05 9. Loan Rate 1.98 10.Higher of (8) or (9) 2.05 11.CCP payment Rate (7)-(10) 0.27 12.Base Acres (Same as (2) above) 812.44 13.CCP payments Yield 141 14.Adjustment Factor 0.85 Total CCP Payments (11)x(12)x(13)x(14) 26290 CCP payments per Base Acre 32.36 LDP Calculations Corn 15. Planted Area 825 16. Actual Yield 155 17. County Loan Rate 2.01 18. Posted County Price on Exercise Date 1.92 19. LDP Rate (17)-(18) 0.09 Total LDP ayment (15)x(16)x(19) 11509 LDP Payments Per planted Acre 13.95 Corn Total Payments 61002 Total Payments per Planted Acre 73.94 Total Payments per harvested Bushel (US$) 0.48 (Pesos/kilogram) 1.05 Effective Price Received on Current Production 2.4 Source: Gray (2002)

Soybeans

Wheat

0.44 687.56 35.44 0.85 9114 13.26 Soybeans 5.8 0.44 5.36 4.75 5 5 0.36 687.56 42.31 0.85 8901 12.95 Soybeans 700 51 5.14 4.54 0.6 21420 30.6 Soybeans 39436 56.34 1.1 2.27 5.64

0.52 150 58 0.85 3845 25.65 Wheat 3.86 0.52 3.34 2.85 2.8 2.85 0.49 150 69.73 0.85 4356 29.04 Wheat 125 73 2.83 2.84 0 0 0 Wheat 8201 65.61 0.9 1.85 3.74

Table 16. PL 480 Title I availed by the Philippines, 1991-2001.

Year

Amount ($ 'M)

Commodities

Specific Purpose

1991

Soybean meal

National budget support

1992

Soybean meal

National budget support

1993

Soybean meal

For Medium-Term Livestock Development Program

1994

Soybean meal

For Medium-Term Livestock Development Program

1998

Soybean meal

For agricultural programs and projects

1999

Soybean meal, sorghum and rice

For agricultural programs under the 10-point Agenda in Agriculture and Fisheries

2000

Soybean meal and rice

For agriculture and fisheries modernization programs

2001

Soybean meal, corn rice and feed peas

For agriculture and fisheries modernization programs

Total

190

NAFC, DA website.

Table 17. Potential US FTAs and sugar TRQ allocation Country North and Central America Mexico Canada Carrebian Barbados Dominican Republic Haiti Jamaica St. Kitts and Nevis Trinidad and Tobago Costa Rica El Salvador Guatemala Honduras Nicaragua Belize Panama

Production

US allocation Exports metric tons

5135000 50000

182000 14000

7258 0

47000 465000 10000 175000 24000 102000 385000 476000 1821000 332000 361000 120000 165000

41000 185000 0 138000 18000 68000 155000 255000 1327000 78000 179000 102000 55000

7371 185335 7258 11583 7258 7371 15796 27379 50546 10530 22114 11583 30538

South America Argentina Bolivia Brazil Colombia Ecuador Guyana Paraguay Peru Uruguay

1633000 368000 22187000 2458000 492000 294000 110000 960000 140000

206000 116000 12750000 1103000 52000 261000 21000 41000 21000

45281 8424 152691 25273 11583 12636 7258 43175 7258

Other Countries South Africa Swaziland Australia Thailand

2709000 542000 4971000 6030000

1395000 516000 3913000 4085000

24221 16580 87402 14743

Annex A Carrageenan: Description and List of Applications

Carrageenan is a hydrocolloid extracted from red seaweeds. Refined carrageenan undergoes an elaborate process that involves drying, cleaning, bagging, dissolving, filtration, precipitation and grinding into powder. The natural grade carrageenan, however, is not dissolved. It is an effective agent used in the processing of sausages, ham, hamburger, chocolate milk, ice cream, frozen desserts, low-fat cheese, milk pudding, salad dressing, beverage mixes, toothpaste, gummy candies, pet foods, air freshner gels, dessert gel, cough syrup, hard capsules and even beer. Below is a list of applications of carrageenan. FOOD APPLICATION Beer/Wine/ Vinegar -accelerates and improves clarity. Chocolate Milk Drink -stabilizes and improves viscosity. Ice cream -prevents ice crystals formation. -enhances excellent mouthfeel. Flans/Dessert Gel

-enhances flavor release and excellent mouthfeel 36

Sauces and Dressings

-thickens and improves viscosity.

PROCESSED MEAT Beef Patty Luncheon Meat Poultry and Ham

-substitutes fat, retains moisture and increase yield. -prevents fat separation serves as a meat extender. -controls dehydration of frozen poultry, enhances juiciness and increases yield.

NON-FOOD APPLICATION Petfood - binder Canned meat and fish -gelling and stabilizing agent. Toothpaste -stabilizer. Air freshener -gelling agent. Source: http://home.howstuffworks.com/framed.htm?parent=question315.htm&url=http://philexp ort.org/members/siap/intro.htm.

Annex B Mango Export Requirements: Sec. 319.56-2ii Administrative instructions: conditions governing the entry of mangoes from the Philippines. Mangoes (fruit) (Mangifera indica) may be imported into the United States from the Philippines only under the following conditions: (a) Limitation of origin. The mangoes must have been grown on the island of Guimaras, which the Administrator has determined meets the criteria set forth in Sec. 319.56-2(e)(4) and Sec. 319.56-2(f) with regard to the mango seed weevil (Sternochetus mangiferae). (b)

(b) Treatment. The mangoes must be subjected to the following vapor heat treatment for fruit flies of the genus Bactrocera. The treatment must be conducted in the Philippines under the supervision of an inspector.

(1) Size the fruit before treatment. Place temperature probes in the center of the large fruits. (2) Raise the temperature of the fruit by saturated water vapor at 117.5 deg.F (47.5 deg.C) until the approximate center of the fruit reaches 114.8 deg.F (46 deg.C) within a minimum of 4 hours. (3) Hold fruit temperature at 114.8 deg.F (46 deg.C) for 10 minutes. (4) During the run-up time, temperature should be recorded from each pulp sensor once every 5 minutes. During the 10 minutes holding time, temperature should be recorded from each pulp sensor every minute. During the last hour of the treatment, which includes the 10minute holding time, the relative humidity must be maintained at a level of 90 percent or higher. After the fruit are treated, air cooling and/or drench cooling are optional. (c) APHIS inspection. Mangoes from the Philippines are subject to inspection under the direction of an inspector, either in the Philippines or at the port of first arrival in the United States. Mangoes inspected in the Philippines are subject to reinspection at the port of first arrival in the United States as provided in Sec. 319.566. (d) Labeling. Each box of mangoes must be clearly labeled in accordance with Sec. 319.56-2(g). (e) Phytosanitary certificate. Each shipment of mangoes must be accompanied by a phytosanitary certificate issued by the Republic of the Philippines Department of Agriculture that contains additional declarations stating that the mangoes were grown on the island of Guimaras and have been treated for fruit flies of the genus Bactrocera in accordance with paragraph (b) of this section. (f) Trust Fund Agreement. Mangoes that are treated or inspected in 38

the Philippines may be imported into the United States only if the Republic of the Philippines Department of Agriculture (RPDA) has entered into a trust fund agreement with APHIS. That agreement requires the RPDA to pay, in advance of each shipping season, all costs that APHIS estimates it will incur in providing inspection services in the Philippines during that shipping season. Those costs include administrative expenses and all salaries (including overtime and the Federal share of employee benefits), travel expenses (including per diem expenses), and other incidental expenses incurred by APHIS in performing these services. The agreement requires the RPDA to deposit a certified or cashier's check with APHIS for the amount of those costs, as estimated by APHIS. If the deposit is not sufficient to meet all costs incurred by APHIS, the agreement further requires the RPDA to deposit with APHIS a certified or cashier's check for the amount of the remaining costs, as determined by APHIS, before any more mangoes will be treated or inspected in the Philippines. After a final audit at the conclusion of each shipping season, any overpayment of funds would be returned to the RPDA or held on account until needed, at the RPDA's option. (g) Department not responsible for damage. The treatment for mangoes prescribed in paragraph (b) of this section is judged from experimental tests to be safe. However, the Department assumes no responsibility for any damage sustained through or in the course of such treatment. Done in Washington, DC, this 8th day of June 2001. Bobby R. Acord, Acting Administrator, Animal and Plant Health Inspection Service. [FR Doc. 01-14937 Filed 6-08-01; 4:39 pm] BILLING CODE 3410-34-U